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Gentry Shoe Corp: Allowable Margin Purchases

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Laurn has a margin account and deposited $50,000. Assume the prevailing margin requirement is 40 percent, commissions are ignored, and Gentry Shoe Corporation is selling at $35 per share.

a- How many shares can Laurn purchase using the maximum allowable margin?

b- What is Laurn's profit (loss) if the price of Gentry's stock
i-rises to $45 ii-falls to $25

c- If the maintenance margin is 30 percent, to what price can Gentry shoe fall before Laurn will receive a margin call?

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Solution Summary

This solution shows step-by-step calculations to determine the shares in the allowable margin, Laurn's profit and conditions for receiving a margin call.

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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